Friday, October 13, 2017

It's High Time for Puerto Rico to be a State

Hurricane Maria over Puerto Rico/NASA
The Island of Puerto Rico was in trouble long before Irma (Category 5) gave it a glancing blow, and Maria (Category 4) gave it a direct hit. Puerto Rico was also hit hard by the Great Recession of 2007-2013; it has had a structural (i.e. planned) shortfall in its budget since before 2012, and a chronic shortfall for the past 30 years. It has financed the difference with bond debt, to the point that Puerto Rico has outstanding bond debt of more than $72 billion.  In addition, Puerto Rico has unfunded pension liability in excess of $50 billion.  This $122 billion of outstanding indebtedness falls on an economy with an annual GDP of just $103 billion (2013) and falling.  That is $34,857 of debt for every man woman and child in Puerto Rico where:
  • the median income is just $18,626.00
  • the poverty rate is 41%, 
  • the labor participation rate for those over 16 years of age is just 46%
  • the official unemployment rate is 12%
As President Trump noted, by way of excuse for a slow response to the tragedy wrought by hurricane Maria, Puerto Rico is an island more than a thousand miles removed from the American mainland. It relies on shipping for its imports and exports. In 2016 $25 billion of goods was shipped to Puerto Rico from the U.S. mainland; and $56 billion was shipped from Puerto Rico to the U.S. mainland.

Shipping to and from Puerto Rico is expensive. The island is constrained by the Jones Act, which prohibits foreign ships from shipping between U.S. ports. This means all shipping to and from the U.S. mainland to Puerto Rico must be on U.S. flagged vessels. A study by two Puerto Rico economists in 2012 calculates that this adds $0.5 billion/year in shipping costs. Puerto Rico has repeatedly sought relief from the Jones act, without success.

Puerto Rico is a Reluctant Ward of the Federal Government

Puerto Rico was a colony of Spain for 400 years. Ponce deLeon, one of Columbus's lieutenants was left in charge after Columbus's second voyage to the New World in 1493. Four centuries later, after the U.S. defeated Spain in the Spanish American War, Spain ceded Puerto Rico to the U.S. in the Treaty of Paris (1898). Since then the island has been a ward of the U.S. Congress.


In 1905 in Rasmussen v. U.S the Supreme Court held that "The inhabitants of the ceded territory shall be admitted to the enjoyment of all the rights, advantages, and immunities of citizens of the U.S."  Congress followed up and formally granted citizenship to to all inhabitants born in Puerto Rico after 1899.  But some in Puerto Rico complained that this grant of citizenship on the eve of the U.S. entry into World War I was for the cynical purpose of expanding the draft pool. The Selective Draft Act for World War I was prepared between December 1916 and February 1917, and enacted on May 18, 1917. [Citizenship was conferred on Puerto Ricans on March 2, 1917] The act required all citizen males aged 21- 31 to register for the draft. Ultimately approximately 20,000 Puerto Ricans were drafted for service in World War I. 

Not all Puerto Ricans were keen on becoming citizens of the U.S.  In 1914 the Puerto Rico House of representatives voted unanimously for independence. Puerto Ricans wanted to be their own country. Congress ignored the vote. When (in 1917) Congress granted citizenship to all inhabitants born on the island after 1899, the Puerto Rico House of Representatives again voted against it. 

But citizens they became. 

Puerto Rico has had a nationalist, independence movement since before the island was ceded to the U.S. by Spain. In 1937, on Palm Sunday, there was a peaceful march by nationalists in Ponce to celebrate the abolition of slavery in Puerto Rico (slavery was abolished March 22, 1873). The police and army killed 21 and wounded 200 in an attempt to disperse the march.  

In 1947, Congress granted Puerto Rico the right to elect its own governor, with a four year term. 

In 1948, the Puerto Rico legislature passed legislation to suppress the nationalist movement. Flying the Puerto Rico flag was made a crime, so was the signing of a petition for independence, so was speaking in support of Puerto Rico's independence. The statute was repealed nine years later before it could be slapped down by the Supreme Court.  

In October 1950 there was a nationalist revolt in various locations on the island. Protesters were attacked with infantry, artillery, and bombers. Sixteen nationalists and four civilians were killed. 

On November 1, 1950, two Puerto Rican nationalists from New York attempted to assassinate President Harry S. Truman in Blair House.  

Sentiments warmed during the '50s and '60s when the United States promoted industrialization on the island. Tourism grew, and the island became a center of pharmaceutical manufacturing, attracted by cheap labor and by tax incentives that allowed corporations to transfer profits made in Puerto Rico to the mainland without taxation. 

Taxation Without Representation

Notably, "the rights and advantages" enjoyed by Puerto Ricans do not include representation in the U.S. Congress. They may not vote in the U.S. general elections, they have no Senators, and no members in the House in Washington D.C. For more than a century, they have been taxed without representation. 

Puerto Ricans pay most federal taxes, but not the income tax (unless you work for the federal government). And like most poor states, Puerto Rico receives more back from the federal government than it pays in. According to the Economist, for the period 1990 to 2009, Puerto Rico received $182 billion in federal funding in excess of what it paid in to the treasury. But this is significantly less than other poor states:
  • Virginia         -$592 billion     (7.9 million pop. 2009) 
  • Maryland       -$573 billion    (5.7 million '09) 
  • Florida           -$298 billion    (18.6 million '09)
  • Alabama        -$290 billion    (4.8 million '09)
  • Mississipi      -$239 billion    (3.0 million '09)
  • Kentucky       -$207 billion    (4.3 million '09)
  • Arizona          -$206 billion    (6.3 million '09)
  • Louisiana       -$203 billion    (4.5 millon '09)
  • New Mexico  -$201 billion    (2.0 million '09)
  • S. Carolina     -$192 billion    (4.6 million '09)
  • Puerto Rico    -$182 billion    (3.7 million '09)
See also, the Atlantic.  With two senators and four represenatatives in Congress, Puerto Rico would have a lot more clout. Governor Ricardo Rossell√≥ contends that Puerto Rico would receive an additional $10 billion a year in payments from the Federal government if it were a state--this would represents a third of the Puerto Rico budget and would go a long way to alleviating Puerto Rico's problems.

In June 2016 Congress passed legislation (PROMESA) to create an unelected fiscal control oversight board to restructure Puerto Rico's debt. The fiscal control board drafted an austerity plan for 2017-2026, that will cut deeply into Puerto Rico's public service budget—included cuts to health care, pensions, and education—in order to repay creditors. As with Greece, such austerity measures serve to further depress the economy of Puerto Rico. It is accelerating net outmigration from the island. Between 2000 and 2015 the population dropped 9%. The island has lost 80,000/year for the last two years, and this outmigration is certain to rise this year.

Puerto Ricans have been citizens for a century. It's high time for them to have political representation in Congress and for them to be able to vote for president!

Puerto Rico's Ward of State Status Does not Work

Puerto Rico still has a small independence party in its legislature, but today most political power is split between the PNP (favoring statehood) and the PPD (favoring the status quo).  A 2012 referendum indicated that 54% of the population did not favor the current territorial status for Puerto Rico. 

It is time to upgrade Puerto Rico to a state. If they were a state, they would have two senators and at least four members in the House. They would be taken more seriously. They would pay federal income tax and the 3.4 million people on the island would be on an equal footing with similarly sized states on the mainland. 

On June 11, 2017 Puerto Rico held a referendum which asked whether Puerto Ricans preferred (a) statehood, (b) some type of independent association with the United States (like the Marshall Islands, Micronesia, and Palau), or (c) the continuation of the current commonwealth relationship.  The third option was added at the request of Trump's Justice Department. The result was an overwhelming preference for statehood (97%), but this was based on an underwhelming turnout of only 23% of the electorate.  

Statehood would bring huge benefits for Puerto Rico, and for the U.S. For the U.S. to have a quasi-colonial relationship with an island of 3.4 million people in the 21st century is atavistic. For the Puerto Rico electorate to be blas√© and ignore such a referendum is a sign of significant political dysfunction.  [Compare the Scottish independence referendum of 2014, with a voter turnout of 85%] 

Trump's Lack of Vision

With all of Puerto Rico's problems, the damage wrought by hurricanes Irma and Maria presents an opportunity to make political and infrastructure changes that are needed to bring Puerto Rico up to code as an American state. 

Trump is providing no vision. Instead he sends out tweets like this one yesterday: “‘Puerto Rico survived the Hurricanes, now a financial crisis looms largely of their own making," , quoting Sheryl Attkisson of the conservative Sinclair Broadcast Group.  The president's message is unequivocal . . ., we should care less about the people of Puerto Rico. 

The Tweet symbolizes what's wrong with President Trump: he lacks empathy, his leadership instincts are to tear people down, not build them up, and he lacks vision. It's not a helpful quality in a President. 

What better opportunity than now to focus on building up Puerto Rico, to modernize its infrastructure, to continue to build up its industry, to find a way to make it self-sufficient in terms of agricultural production, to tackle the bond debt and pension liability problems, to grant the island relief from the Jones Act, to lower unemployment? What better time than now to focus on the future of Puerto Rico--to lay out a vision?  

Instead of laying out a vision for what can be accomplished, Trump is picking on the weak and helpless with inane Tweets. He is picking on 3.4 million non-voters, the poorest territory in the United States. 

The damage caused to the island by the two hurricanes as described in detail at VOX is monumental. The cost of reconstruction will greatly increase the financial pressures on Puerto Rico. We need a president who can seize a moment like this and set out a positive vision. A president who can inspire. But that's not Trump's thing. This opportunity is being squandered. We'll have to wait for the next president. 

San Juan, Puerto Rico/Odyssey





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